Sheik Spars With UBS Over $20 Million Fee

By

Asa Fitch

Updated March 25, 2013 9:55 p.m. ET

A Kuwaiti sheik alleges that a senior executive at Switzerland's
UBS
AG
offered $20 million to get the bank an advisory role on one of the biggest-ever acquisitions in the Middle East, but the bank later backed out of the deal, according to the sheik's testimony in a Dubai court case.

Sheik Meshal Jarah Al Sabah said in sworn testimony that UBS offered the commission in 2009 to derail a bid by the French media group
Vivendi
SA
for the African telecommunications assets of Zain, Kuwait's biggest mobile-phone company, and to get UBS a lead role finding a different buyer.

Sheik Meshal sued UBS last year in the Dubai International Financial Centre courts, where UBS has offices, claiming he wasn't paid his fee. The written submission, which was reviewed by The Wall Street Journal, is his first direct testimony in the case.

UBS denies the allegations and said in a statement that it is "vigorously defending this claim."

The trial is scheduled to begin in June.

If the allegations are true, they could spotlight the role that well-paid middlemen play in deal making in the Gulf, where the reins of wealth and power are held by coteries of royal-family members and where the breadth of a single person's influence often can make or break a transaction, lawyers say.

"If you put yourself in the milieu of being around influence agents, commercial and governmental, your chances of success are increased," said
John Habib,
a lawyer at M.E.N.A. Bridge Advisors in Abu Dhabi, speaking generally about doing business in the region. Mr. Habib has been working in the region for more than two decades and helps foreign businesses set up or expand in the Gulf.

ENLARGE

Sheik Meshal says he helped UBS get a role in the sale of Zain assets. Above, Kuwaities use a Zain quick service machine at a store in Kuwait City in 2010.
Agence France-Presse/Getty Images

UBS said in court filings last year that its meetings with Sheik Meshal, who doesn't currently have a position in Kuwait's government but is a former Ministry of Interior official, were purely social and didn't involve any business discussions. In those filings, UBS said it met with Sheik Meshal, but denied that it discussed the Vivendi sale, offered him payment or asked him for help getting a role in the sale of Zain's African assets, which ultimately were sold to Indian telecom
Bharti Airtel
for $10.7 billion in 2010. UBS was the lead adviser.

In his testimony, Sheik Meshal said that
Omar Al Salehi,
the UBS vice chairman of investment banking in the Middle East, offered him the fee at a meeting in mid-2009 when enlisting his help on the Zain deal. Zain was about to sell its African assets to Vivendi, the testimony says, and was getting advice from France's
BNP Paribas
SA
.

UBS had no role in that transaction, and came to Sheik Meshal because it felt its best chance of getting a lead advisory role would require opening the assets to bids from other companies, according to the sheik's testimony.

"Omar then got to the point and said that UBS needed my help to destroy…the Vivendi transaction," Sheik Meshal says in his testimony. Sheik Meshal says he agreed with Mr. Al Salehi to a commission of between 0.1% to 0.2% of the deal's value, which he says Mr. Al Salehi said likely would equate to around $20 million, for help in doing so. Also, he was "to speak for UBS with the major shareholders [of Zain] to promote UBS as lead investment bank for the sale of the African assets," the testimony says.

Sheik Meshal then describes how he says he used his influence on UBS's behalf, placing a series of telephone calls that he says led to the demise of Vivendi's bid. Sheik Meshal says that before the first meeting even ended, he talked to another member of the Kuwaiti royal family who was then one of Zain's biggest shareholders, and got him to agree to help, according to the testimony. Vivendi's involvement in the sale of the Zain assets soon ended, the testimony says.

Zain declined to comment. Bharti and Vivendi didn't respond to requests for comment.

Sheik Meshal says he then turned to landing UBS a lead advisory role on a sale to a different buyer. He says he acted as a go-between for UBS and Zain's biggest shareholders, and met in December 2009 with the late Nasser Kharafi, a businessman who was Zain's largest shareholder, when he says UBS still was clamoring for a definite mandate to handle the transaction. All it took was a single meeting, according to the testimony.

The deal was done the following March. UBS lined up Bharti Airtel to buy the assets. As Zain's lead adviser, UBS made a fee of $22.5 million, according to its filings in the case. When Sheik Meshal asked for his payment, UBS balked, his testimony says.

UBS later invited Sheik Meshal to apply for a position at the bank that would have paid $600,000 a year, plus 15% commissions on fees he generated, his testimony says. He says that job never materialized, but that UBS did help him get a job advising the former chief executive of Russia's
Vimpelcom
—further evidence, the sheik says, that UBS was casting about for alternatives to a cash payment. Vimpelcom declined to comment.

UBS said in court filings that its meetings with Sheik Meshal were out of courtesy and didn't involve business, but it acknowledged in the documents that it invited him to apply for a job.

Wherever the truth lies, Western banks in the Gulf are increasingly wary of using middlemen to secure deals, according to lawyers.

U.S. and U.K. authorities have stepped up enforcement of bribery in foreign business dealings, which may herald a longer-term shift in how foreign companies operate in the Gulf, lawyers say.

"The cliché was to just get a big sheik and you have an open coffer to all the big construction projects in Abu Dhabi or Dubai," Mr. Habib said.

"Companies thought they were getting a little leg up, but there is a bit of a sterilizing wave going on."

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